The Nature of Mass Poverty, John Kenneth Galbraith, 1979, Cambridge: Harvard University Press

An end to injustice, to remind, is not necessarily or even usually an end to poverty. —page 133

How Poverty Is Now Explained

Current explanations of the reasons and sources of mass, rural poverty are highly unsatisfactory, and rarely subjected to serious critical analysis. A summary:

Relatively better explanations

Cause

Counterargument and comments

'Naturally' poor (lack of natural resources)

Compare rich countries without resources (Japan, Singapore, Hong Kong, Israel, South Korea) with poor countries with resources (the Middle East); equally with American states (compare Connecticut with West Virginia).

Governmental and economic system

The relative poverty of East Germany, Czechoslovakia, Slovenia, Croatia, Poland, Romania, Bulgaria, Macedonia, Montenegro, Serbia and Russia have been stubbornly consistent over the last hundred years, as governmental and economic systems have changed back and forth: “For assessing the causes of poverty in Eastern Europe, it is obviously more important to ascertain whether the country or region in question belonged before 1914 to the Austro-Hungarian (or German) empire than to assess the modern impact of Communism.”1)

Relatively poorly thought out explanations

Lack of capital (otherwise phrased as, 'this country is poor because it lacks money!')

A confusion of cause and consequence — poor countries don't have these things because they cannot afford them. If they could afford them they wouldn't be poor.

Lack of trained, educated and experienced talent

Ditto.

Ineffective, erratic, corrupt or otherwise inadequate government

Ditto.

“The greatly mentioned unmentionables”

Race

This explanation is curiously ubiquitous in conversation and utterly unmentionable in scholarship.

Climate (latitude)

The correlation between latitude and affluence is not seriously in question but existing explanations remain inadequate (most focus on the negative health effects of warmer climates and a negative impact on productivity).

The poor world's explanations

Legacy of colonialism

The main problems are (a) the diverse impacts of colonialism on different countries (particularly considering the USA, Canada and ANZ) and (b) the length of time that Latin America has been free of Spain (ignoring US influence). Also a comparison of independent Ethiopia and Thailand with their neighbours.

Producers of agricultural products and raw materials “suffer persistently in the terms of trade with the industrialised lands”

The main problems are the USA and Australia. “There is merit in this range of argument, as I will later suggest” but “If to be a producer of primary products… places a country in the Third World, then the United States… is, by a wide margin, the first of the Third World nations.”2)

The Political Origins of Error

Until the Second World War there was essentially no discussion of mass poverty or its solution. In the rich world, the poor were irrelevant or voiceless. In the poor, a general assumption prevailed that independence was the self-evident solution, that all else would follow. In the US, the turnaround came suddenly in 1949 with a declaration by Truman, dedicating the US to Point IV, “a promise of a bold programme to place the technical resources and achievements of the US at the service of the less fortunate people of the world”3) and by the extreme and unexpected public response. In the beginning, there was such an absence of existing knowledge of the subject that it was almost impossible to know where to start, and many of those mandated to design programmes recommend no attempt be made to do so. But the public support of the project in large part ensured perseverance, and US overseas aid rose from essentially zero in 1950 to over $5.5bn in 1965. This might have seemed odd in an era in which conservatism so totally dominated American politics, and yet many viewed the need to raise living standards in the poor world as an urgent task in the struggle against Communism. Although to Galbraith, the risk of Third World countries rapidly becoming a threat to the US through economic development under Communist governance was largely if not totally illusionary: ”[c]oncern for Communism in the poor world was a major aberration of the foreign-policy and strategic mind.”4) He does not mention the poor world's value as a source of raw materials or strategically valuable territory.

Because of these circumstances — the sudden desire to begin 'curing' poverty in the aftermath of a presidential decree, the paucity of serious literature or study on the matter, the urgency of conservative feeling over the threat of Communism — the analysis proceeded through a somewhat unorthodox logical progression. Essentially, it began with the premise that we must do something, took careful note of what it was possible for us to do, and concluded by inserting appropriate explanations for poverty which would conveniently recommend those remedies which we were capable and willing to offer. “The imperatives of action specified the causes that were not acceptable, and they selected the causes that were.”

Unacceptable causes

Cause

Reason it had to be dismissed

The economic system

If the cause of poverty was inequality in land ownership or in wealth generally, landlordism, feudalism, or general exploitation in whatever mode of production existed, then the obvious solution smelt far too much like Communism to be palatable.

Climate

Washington had no solution.

Race

Not only did Washington have no solution, but it seemed politically dangerous to advance the suggestion.

Demographic factors (population growth)

In the first instance, because it would have angered Catholics in the developed world. As the urgency of this danger diminished over time (although it still remains a force today), the political difficulty of rich (especially predominantly white) nations telling poor (especially predominantly coloured) nations that the latter ought to curb their numbers also appeared politically dangerous.

Acceptable causes

Cause

Reason it was appropriate

Lack of technical expertise

Providing technical expertise was one of the cheapest interventions imaginable; it is abundant in the West and easy to provide.

Lack of capital

Although not as thrifty as technical expertise, nevertheless capital is abundant and straightforward to provide — but also it tended to support technical expertise. One of the first observations of technical experts accustomed to a First-World environment was 'this organisation lacks capital'.

And thus it was that the dominant analysis of the causes of poverty stemmed expediently from the remedies that were easily available to Western planners.

The Equilibrium of Poverty

To an extent, the diagnosis of mass poverty stemming from insufficient capital and backward technology outlived its political expediency. A major reason for this is how readily it fit into the existing economic landscape. A consensus had emerged through Smith, Ricardo, Malthus, Marshall and Keynes that economic growth relied upon

an income in excess of that necessary for consumption, yielding a surplus that can be invested in capital,

a source of new technology enabling the improved productivity of capital and labour,

a system for organising production, distribution and consumption (under a market system this relied upon a political and social system that allows and encourages the individual to increase his wealth in safety; in the socialistic alternative a strong educational system and capable bureaucratic organisation), and

the regulation of aggregate demand by government.

This consensus essentially spanned all capitalist and socialist thought, and had been confirmed by decades if not centuries of experience. The diagnosis that mass poverty was perpetuated by the lack of the capital and technology required to escape it therefore effortlessly slotted the poor world into existing theory.

The reality was quite different. In truth, rich and poor societies were far more different from one another — the rich economy tended towards an equilibrium of improvement, whilst the poor society suffered from an equally strong equilibrium of stagnation, of poverty. These equilibria were powerfully reinforced by motivation — the rich were motivated by rational expectations of improvement, whilst the poor responded rationally to the historical absence of improvement with a lack of motivation to attempt the futile.

A further observation should be made at this point about mass poverty: it is an overwhelmingly rural phenomenon. Estimates place approximately 80 per cent of extreme poverty in rural areas, and furthermore it is rural poverty that is intractable. “Here, people have lived at or near the minimum necessary for survival for a long time; for practical purposes, always… Improving income here is not normal. It is and always has been unknown.”5)

It is here that the circular causation of poverty is clearest. Income barely covers subsistence consumption, there is no surplus for investment. Without investment there can be no improvement in technology — in practical cases technology must be embodied in some form of costly investment, even if the expenditure is minute by the standards of the non-poor. Further, the evidence suggests that the technology in use is usually well tailored to the capital available, and frequently surprisingly innovative subject to binding constraints. There may be individuals with some capacity for saving, “but the meagreness of capital supply remains a ruling fact.”6) Extreme risk aversion must be added — and must not be underestimated — as a disincentive to experiment; it must be emphasised that when failure results in hunger or death it is perfectly rational to eschew experimentation, even if this bias escapes the technical adviser not exposed to the risk.

However, the equilibrium of poverty requires more than barriers to improvement, an equilibrium requires a recuperating force which, in the event of a fortuitous increase in income, will tend to drive incomes back down to, or near, their earlier level. In an environment in which nutritional and medical deprivation ends and shortens lives, and makes the living too sick or poor to procreate, that force is simple. An improvement in income will loosen the restraint on the increase in population, and increasing population will drive per capita income back down to their previous level. Unlike in rich societies, in which continual investments in technology tend to increase productivity of new workers over that of their predecessors, in a poor society with stagnant technology reliant on a limited quantity of land, additional labour will be subject to diminishing returns.

In northern and western India in the last century, the British built vast irrigation works to supplement the insufficient or uncertain rainfall. The acreage so irrigated is still by far the most extensive on the globe. Canal digging for thousands of people on the northern Indus Plain became a way of life, handed down from father to son. And the British also invested heavily in railroads that allowed of a more efficient and equitable distribution of available food resources across the land — much Indian railroad-building was a famine-relief measure. —page p56-57

The result in the short term was an increase in income, in the medium term an increase in population only.

A final hold on the poor is the particularly acute competition between saving and consumption in the poor world. Not only does consumption yield such high utility at such low levels of total consumption, but in the poor world the decision to save must be made by individuals subject to the painful trade off. On the other hand, in the rich world, the decision to retain profits for investment is normally made dispassionately by an organisation at least partly motivated by its own aggrandisement. The rich world, therefore, enjoys a specific bias in favour of investment relative to the poor.

In sum, the poor world is faced with a stable equilibrium of poverty; in the rich world conditions are much the opposite, and an equilibrium of increasing income prevails.

Accommodation

Put simply, 'accommodation' is a natural process by which individuals accept poverty as natural and inevitable, and cease trying to escape it under the belief that such an escape is impossible.

People who have lived for centuries in poverty in the relative isolation of the rural village have come to terms with this existence. It would be astonishing were it otherwise. People do not strive, century after century, against circumstances that are so constituted as to defeat them. They accept. Nor is such acceptance a sign of weakness of character. Rather, it is a profoundly rational response… Poverty is cruel. A continuing struggle to escape that is continuously frustrated is more cruel. —page 62

Accommodation is the natural, rational and justifiable reaction to centuries of experience of stagnant incomes (perhaps with a few instances of temporarily rising incomes ultimately being eroded by the forces detailed in the previous chapter). Over time, accommodation becomes reinforced by culture and religion. All major religions reinforce this accommodation whether explicitly (particularly in Christianity and Hinduism) or implicitly.

There has long been a suspicion, notably enhanced by Marx, that the contentment urged by religion is a design for diverting attention from the realities of class and exploitation — it is the opiate of the people. It is, more specifically, a formula for making the best of a usually hopeless situation. —page 63

Just as rich societies tend to assume that their economic models are appropriate to the poor, so they tend to blithely assume that their attitudes should also be appropriate to the poor. They have historically tended, therefore, to dismiss accommodation as laziness, or as contentment with their lot.

Accommodation is never equal or universal. No matter how poor a society, there will always be a minority who continue to experiment and struggle to escape poverty. Rationally, the proportion of those that have not accommodated to their poverty rises with wealth and with the availability of the opportunity to escape. It has frequently been observed in the context of agricultural extension services in the US that the most effective work was done with a minority of farmers, typically a group least in need of help. These were the unaccommodated minority: most receptive to outside help, and in a context of opportunity, the first to escape poverty. The accommodated remainder are rationally slow to take risks with new methods, and may only adopt innovations after a generation, in response to the example of their neighbours. In this context, accommodation was usually seen as “unworthy and unnatural,”7) but was nevertheless recognised.

There is a tendency to overlook accommodation in the literature, for three main reasons:

It is useful to economists, politicians and planners to take the desire for improvement for granted, because of the difficulties they would face in explaining the need to intervene in people's lives in ways that those people have not sought or requested,

It appears derogatory, by implying that the poor lack ambition or the will to help themselves, and

There is a history of the rich using the contentment of the poor as an excuse for resisting charity — “civilised and compassionate people seek naturally to avoid the guilt of association with such doctrine.”8)

Nevertheless, the reality of accommodation needs to be understood without it being taken as a justification for accepting poverty, or as a sign that the poor are in some way lazy, unmotivated or stupid.

Poverty remains a painful thing whether people have accommodated to it or not. —page 69

Land Reform

The concepts of the equilibrium of poverty and accommodation are sufficient to explain various phenomena, amongst them the disappointing history of land reform. Popular theory has long suggested that by equalising landholdings amongst a population and removing a useless landlord class, the peasant class newly unencumbered by rents or the need to sell their labour can earn sufficient income to save, improve their own productivity and thereby escape poverty. So may be the case in China, South Korea and Taiwan. But elsewhere, the initial poverty was simply too great; the cut taken by the landlord class too small to make enough of a difference when redistributed to overcome the impoverishing forces of accommodation and the equilibrium of poverty. Too often in the wake of land reforms, negligible incomes leapt but remained negligible; infant mortality fell and population grew to negate improvements in income. As with most generalisations, there have been exceptions (Cuba, perhaps, being a case in which the landlord class took such a large cut of production that their expulsion could make a real difference), but the common experience of

Mexico after the destruction of the Haciendas; as in the United States after the emancipation of the slaves; as in Russia after the freeing of the serfs or later after elimination of the landlords; and as in India after the imposition of upper limits on allowable landholdings, the effect of the changed relation of the people to land was not accompanied by the hoped-for improvement in income. For many there was no improvement at all. —page p74-75

What Is Now Explained

Various tendencies mentioned earlier are now more explicable. The association with climate largely comes down to the prevalence of disease, particularly disease which can be overcome through improved nutrition. This exacerbates the equilibrium of poverty, in particular by sharply reducing infant mortality in response to a temporary improvement in income. Additionally, it is possible that the tasks of producing clothing, storing food and building shelter may make the rejection of accommodation more likely.

The association between ethnic difference and poverty is one of the differing histories of different peoples. “An ethnic community that has long been poor will have a strong accommodation to the equilibrium of poverty, and this acceptance will be relatively complete. One that has been less poor will have a less complete accommodation. More of its people will be seen as energetic or enterprising.”9)

The rejection of accommodation is not always voluntary: it can be forced by war, famine, or expulsion. Although people of all incomes are, to some extent, accommodated to their level of income and its rate of change, that accommodation is greater the lower the level of income and the more consistent has been its stagnation.

It is difficult to place responsibility for poverty on the terms of trade between the rich and poor world. The obvious thought-experiment is to imagine a doubling of commodity prices relative to industrial goods. The main beneficiaries would likely be the primary producers of the US, Canada, Australia and Argentina, since they have the largest saleable surplus, and could respond most quickly by increasing yields. The rural masses' “poverty comes less from their adverse terms of trade than from having so little to trade.”10)

The legacy of colonialism deserves a final note, and the judgement is mixed. Certainly, through repression of those outside of the imperial hierarchy seeking political power, colonialism encouraged accommodation. But colonial rule “also had strong tutelary aspects which acted in many and varied ways against accommodation, as also, by example, did the colonial rulers themselves.”11) The various struggles for independence also encouraged the challenge of accommodation.

Would India, Pakistan, or Bangladesh be more developed had the British never come?… Whether… colonialism was a service or a disservice to accommodation and thus to the continuing equilibrium of poverty had best remain a subject for debate… [but] No less a revolutionary figure than Marx was firm in his belief that the British were a positive and progressive force in India. —page 91

The misery of being exploited by capitalists is nothing compared to the misery of not being exploited at all. –Joan Robinson, 1964, Economic Philosophy, Garden City, NY: Doubleday, p45

The Framework of Policy

Ameliorating policy based on the above analysis shall have a dual focus: first, to combat accommodation to seek to enlarge the number of people with the motivation to escape poverty; second, to facilitate that escape. However, the two are very much interdependent. The provision of a way out of poverty, no matter how well-designed, will not be taken by those who have fully accommodated to that poverty. “But an attack on accommodation requires that there be an alternative. To encourage and hold forth a promise of escape that is false commits those who are so persuaded to the cruel frustration that in the past has made accommodation the better solution.”12)

Facilitating Escape

Policy to facilitate escape can itself come in two forms: either to facilitate escape from poverty (by migrating); or alternatively to facilitate escape within poverty (by improving yields). Again, the two are to some extent reliant on one another. The migration of some to the towns reduces the burden of too many workers on too little land and can in many cases be a prerequisite for a more general change in the condition of rural agriculture.

However, rural-urban migration has no shortage of critics. It too often brings poverty and its unsightliness within the sphere of awareness of the more affluent. Its more extreme form, international migration, has long suffered a taboo by tacit agreement of countries on both sides of the divide. And commentators in the rich have often criticised the fascination of poor governments with an emphasis on industrialisation.

In the prescription for human betterment, there is no greater constant than the belief that poor people are better off if they remain very poor but in fresh air. —page 98

Breaking Accommodation

The methods by which accommodation is broken are not in doubt. They are trauma and education. —page 100

I hasten to add that only one or the other is necessary. Through education, individuals gain access to the world outside of the culture of poverty into which they were born, and are given an important tool for escaping poverty.

Repeatedly one is impressed with how effectively the untutored instinct of the last century fostered economic development — how much better on occasion it was than the much more careful and deliberate analysis of our own day. The unerring emphasis on transportation as an instrument of economic development is one example. The attention paid to free and compulsory education is another. Education was made compulsory because it was recognised, in effect, that nothing less would break the accommodation of the poorest families to their poverty. —page 101

At this time it was clearly recognised that accommodation and the associated resistance to education increased sharply with poverty.

There was a general and often explicitly stated feeling that education was a dangerous thing — that it made the young “dissatisfied with their lot”, which was to say with perfect accuracy that it was an assault on accommodation. —page 102

Galbraith declines to comment in detail on the content of education, deferring to those with more relevant experience. He only says that there is no viable short-cut in attempting to teach advanced agricultural methods to the otherwise uneducated. It has been tried repeatedly and failed. It is through more gradual and subtle processes that education combats accommodation.

Escape within Poverty

Two features of agricultural extension programmes are necessary: they must follow improvements in education, not precede them, if they are going to exploit the increased number of farmers rejecting accommodation, and they should target those most keen to adopt them rather than trying to reach the poorest, or to attempt universal coverage. This runs contrary to the conventional wisdom:

Nothing in the past has so criticised efforts at agricultural improvement as the charge that “they are reaching only a small minority of producers. They are not reaching the poor farmers.” There should be no such effort to reach the indifferent farmers. Agricultural extension should reach only those who resist accommodation… —page 104

The Industrial Escape

The escape from poverty already outlined can, itself, take two forms: either the domestic transfer from the rural to the urban sector, or international migration. The familiar instinct that industrialisation is important to provide a domestic opportunity for escape is sound.

However, almost all poor countries wish to industrialise: the real question is not the importance of industrialisation, but how industrialisation is achieved. Here there is no agreement, and in general, “the counsel that poor countries receive, for all its assurance, [is not] very good.”13)

The worst advice comes from the socialist world, which is unfortunately compelled to urge socialism. One of the poor country's scarcest resources is “administrative talent, with its complementary requirements in expert knowledge, experience and discipline.”14) Socialist governance requires an enormous quantity of this to succeed — ti is therefore an option available only to more developed countries. What's more, Marx (and Lenin, after assuming power) were keenly aware of this:

Marx urged with great and persistent eloquence that economic and political development was firmly sequential. Capitalism was an — essential prerequisite to socialism… No one would have been more attracted than Marx to the view that, in the poor country, administrative capacity is a scarce resource, that this must develop before socialism can succeed. —pp113-4

The most obvious counterargument is based on the experience of China, where a socialistic development model appears to be successful. However, this is due to the unique situation in China, and should not be seen as a model that could easily be transferred to many other countries:

For China, of all the countries in the world, has the greatest experience in organisation, administration, and acceptance of the associated discipline — it had an orderly, centralised, and successful system of public administration when the Western European polity had not proceeded beyond tribal leaders carrying clubs and wearing skins. —p112

The nonsocialist world has tended to urge that all is required for economic development is soundly non-Communist government, with abundant capital in a secure investment climate. “This is egregiously optimistic.”15) In fact, there are four or five basic prerequisites:

An adequate supply of capital (“in practice much of it under public auspices from outside the country”16)) and an efficient, incorrupt system for disbursing loans,

“There probably need to be some publicly sponsored industries”17) from whose example the private sector can draw, such as steel, chemicals or petrochemicals.

Finally, education and training are not really a part of the list, since they are a prerequisite, but “it is reasonable to expect that if all else is available, [education] will be sought and obtained.”18)

For the weakest governments, it will be extremely difficult to meet these requirements, but the more that weak governments attempt, the less they will achieve — so focus and prioritisation are paramount.

These may be prerequisites for industrialisation, but they are not sufficient. It is a common experience for governments to meet all of these requirements and still fail to industrialise. If this were not the case then all countries would industrialise: none would be able for long to resist an obvious and well-travelled path. So although industrialisation offers an opportunity to escape poverty, it remains an uncertain option.

The temptation to socialism arises here: if the state does something, then, seemingly, it gets done. Alas, if the state is weak, this is not the case… if the state apparatus is overstrained by planning and the creation and operation of public enterprises, then these [foregoing] essentials will go by the board. —p118

On Migration

Although migration is not a panacea, or a uniquely effective solution amongst the strategies available, it is remarkable to note firstly how effective it has been in breaking the equilibrium of poverty in a wide variety of times and places, and secondly how little this fact is appreciated, and the general bias the conventional wisdom gives to alternatives to migration.

There is irrefutable evidence of the crucial role that immigrant labour plays in the advanced industrial economies, most particularly in Western Europe (particularly Switzerland, France, Germany, the Low Countries and Sweden) but also in large parts of the USA (both from within and outside of the US). The United Kingdom is the exception (at the time of writing, 1979, although it had received large numbers from the West Indies, India, Pakistan and Bengal before policy was reversed, and would later open up more rapidly than other nations to migration from other EU member states).

[O]nly one generation divides the Tories who defended the Empire from those who defend the home island from the erstwhile Empire. God must smile. —page 127

It is a common experience within advancing countries that farm labourers do not expect their children to be farm labourers and assembly-line workers do not expect their children to become assembly-line workers. This creates the space within all industrialised societies for a continuous stream of permanent migration, of workers moving from rural poverty into factories and service industries such as hotels, replacing a previous generation of migrants whose children find more rewarding forms of employment. The dependence of industrial economies on this component of the labour force should not be underestimated.

In the autumn of 1976, in Dusseldorf, I asked my luncheon companion, a director of German Ford, if the company could survive without the Turks. He was appalled by the thought… —page 130

In recent years the British automobile industry has been deeply and continuously troubled. One of the less noticed causes is that Britain has been trying to make automobiles… with Englishmen. —page p135-6

There is a further beneficial effect on the recipient economy: migrant labour helps to control inflation and unemployment by providing a means of expanding and contracting the labour supply to suit the economic cycle.

Migration has sometimes been decisive in enabling the communities from which migration occurs to overcome the equilibrium of poverty — amongst the clearest cases are Sweden, Scotland and Ireland. Given the benefits to the both the country from which and to which the migrant travels, the strong political opposition to migration and disregard for it as a development strategy in academia and aid organisations is odd. There are two or three main reasons for this attitude:

“Social disturbance and conflict have usually followed mass movement from poor countries to the rich”19) — although these phenomena tend to be short-lived, or at least more short lived than they are perceived to be.

The widely held, if utterly misguided, perception that there is a fixed quantity of jobs that new migrants 'steal' from those that have already arrived. There is irrefutable evidence that in the advanced industrial economies, migrants cause the economy to expand, with increasing returns. The amount of available employment, and the per capita income, is certainly greater with the migrants than without.

The final resistance comes from the country which migrants leave. There is a certain justification in this — the recognition that those that are leaving are the most motivated and least accommodated. There is also a widespread ambition to 'take care of one's own'.

These attitudes are formidable, no one can doubt. Were they less so, such an old and evident answer to the problem of poverty for those best prepared for rescue would not have been for so long so successfully ignored. It is time, nonetheless, for people who combine compassion with a certain respect for history and economic reality to look candidly at this solution. —page 138